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Some sentiment indicators work by analyzing what people say, such
as polls and sentiment surveys. Others work by analyzing
what people actually do, and I tend to like those more.

This week's chart looks at investments into QQQ, the ETF designed
to track the movements of the Nasdaq 100 Index. The lower
line in that chart is the total number of shares outstanding of
the QQQ. It fluctuates each day as fewer or more people
feel like owning shares. Because of that waxing and waning
of interest, the sponsoring firm (Power-Shares) issues or redeems
shares to keep the share price close to the NAV.

When the firm issues new shares, it goes out and buys the shares
of the NDX component issues to back those ETF shares. Not
surprisingly, interest in owning these shares rises and falls
along with the overall stock market. When the overall
market goes up, that makes more people want to participate.

To help track where “high” and “low” levels are, I added 50-day
1-sigma Bollinger Bands to the chart. That means that the
upper and lower bands are drawn one standard deviation above and
below the 50-day simple moving average, which is not shown.
Other settings for drawing Bollinger Bands could also be used for
the same purpose; I just like these because they look about
right, and give good insights about an overzealous or
disinterested investing public when the shares outstanding number
goes outside these bands.

The current number of shares outstanding is not at an all time
high, but it is the highest we have seen since all the way back
in 2006. And it is way above the upper 50-1 Bollinger Band,
indicating that traders and investors are getting a little bit
too interested in being invested in the QQQ. That overly
bullish sentiment condition begs for at least a short term
pullback, to reintroduce people to the idea that stock prices
actually CAN go down.

The QQQ and the Nasdaq 100 Index are just now breaking out
slightly above their 2011 highs, but interest in owning the QQQ
is well ahead of its corresponding highs in 2011. That
means that traders have been drawn in to owning this ETF to a
degree even greater than what the raw price advance itself would
suggest should have happened.